August 16, 2011

Mitigating Risk in a Surplus Market

In the electronic components industry, there is no debate over the definition of “surplus” inventory. However, what kind of inventory should be classified as surplus has evolved a bit over the last ten years. Formerly, electronic components were considered surplus after they had been in inventory for at least six to twelve months. Now, due to the rapidly changing pace of modern technology, parts can be considered surplus the same day they arrive. At that point, the owner must rush to “move” the surplus inventory before the parts become obsolete electronics. With new technology continually being introduced, the velocity of turning surplus electronic components into recovered value is critical. It is more important than ever to move quickly to try to recapture value from the parts you no longer need.

There are substantial financial risks for any company that finds itself with surplus inventory in a surplus market. A manufacturer could lose millions of dollars, depending on the volume of surplus inventory it owns and the original purchase price, or established cost of the components. The majority of the time, the company will not be getting that entire established cost amount back.

It is possible to find a buyer for surplus parts - and someone to buy obsolete parts - in a saturated market with the help of an expert with vast market knowledge and global connections. A reputable independent electronics distributor mitigates risk and expense in a surplus market by helping manufacturers recover value from their surplus inventory. Of course, one must understand that the resale price may be less than the original price, but it is better to recover some of the loss on surplus inventory than to sit on it indefinitely. Timing is a vital part of the remarketing process. When it comes to surplus inventory, the company that goes to market with a specific type of component first is likely to see a better-value return than are the companies that remarket the same component in the days that follow.

So what qualities should you look for when choosing a surplus remarketing partner? Good question. We will give you some important tips in our next post. Stay tuned!

And remember – if you don’t want to miss a post, you can follow @market_insights on Twitter for the latest news from Converge.

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